Bridging Loans

A bridging loan is temporary funding that’s obtained as a temporary solution, normally for a duration of one month to eighteen months. Basically, this sort of loan provides a financial ‘bridge’ between the need for funds and the release of funds from an existing asset. The purpose of this sort of credit depends on the case, however a lot of bridging loans are applied for to be able to secure property deals where fast purchase is essential.

In commercial cases bridging loans can be taken out to help fund any type of growth or new projects. The bridging loan will be secured against equity in property. Bridging loans are very popular because they provide a fast fix, and with normal lending institutions much less not wanting to provide any type of credit there’s a lot to be said for this alternative method of borrowing.

You are able to secure a bridging loan against the following types of property:

  • Houses
  • Commercial property
  • Retail outlets
  • Flats
  • Land
  • Offices

How A Bridging Loan Works

Many providers of bridging loans might permit you to be able to capitalise the interest of a bridging loan, relieving you of the necessity of making the loan repayments during the bridging period. If you choose to capitalise the interest you will likely have a slightly higher new home loan to cover the capitalised interest.

With certain loan providers you could have six months to be able to sell your property should you be acquiring an established house and around one year if you happen to be building a new property. When your first asset has been sold, the proceeds from the sale are applied to the loan, and any remainder comes to be the end debt. At this stage your home loan will usually revert to the loan provider’s basic variable rate of interest or the interest rate you have negotiated.

What Can A Bridging Loan Be Used For?

The most usual reasons for getting a bridging loan is to finance a property deal. Here are some examples:

  • Business projects which have to be funded fast can be assisted by applying for a bridging loan, with security coming from existing assets owned by the company, and payment from the sale of properties after completion.
  • Businesses that are undergoing an ownership shift often make use of a bridging loan to be able to ensure everything continues smoothly while the changes occur.
  • Price cuts on assets that are dependent upon a fast completion can be facilitated with a bridging loan. Properties bought at an auction are often financed in the first instance with a bridging loan.
  • When selling a house and purchasing another, the payment for the brand new house needs to be made before the sale of the old one is finished. Bridging loans can be used to pay for this, and they’ll be paid back from the proceeds on the home being be sold.

Bridging loans are used by both people and businesses, and are a helpful way of acquiring finance when it’s required promptly. Taking out a bridging loan is often a practical choice, but it is advisable to talk with a professional who will answer any and all of your questions.

Bridging Loan Interest Rates And Fees

Bridging loans biggest costs are monthly interest rates which are charged. When compared with longer term loan options this monthly interest charge is quite high and is the primary reason bridging loans must only be meant as a short-term finance option.

Along with the monthly interest charge lots of bridging loans charge an arrangement fee. Often this is charged as a percentage of the amount of the loan, typically is about one percent or two percent, and is included in the loan facility. In some cases there could be an exit charge, that is charged as a percentage of amount of the bridging loan.

Other costs would be legal fees which pay the lender’s solicitor to secure their fee on the security property at land registry. Appraisal fees on your property will need to be paid up front before a bridging loan can be given to the applicant.